Scaled back mortgage-interest deduction raises concerns

A preliminary proposal to scale back the mortgage-interest deduction came under fire Wednesday with the release of the preliminary report from the bipartisan fiscal commission. 

Michael Berman, chairman of the Mortgage Bankers Association voiced concern over the plan to limit mortgage deduction to exclude second residences, home equity loans and mortgages over $500,000.

"Given the fragile state of the nation's housing market, now is not the time to be scaling back incentives for homeownership," he said today in a statement. "The mortgage interest deduction is one of the pillars of our national housing policy, and limiting its use will have negative repercussions for consumers and home values up and down the housing chain."

While Berman expressed concern about the effects of the policy on the housing market, Ryan Ellis, tax policy director with Americans for Tax Reform, said the proposal would lead to a tax increase. 

"It's not the way to go about it," Ellis said. 

Ellis argues that the fiscal panel's overall proposal actually raises net taxes by nearly $1 trillion over 10 years. 

Although the National Commission on Fiscal Responsibility and Reform proposes a realignment of tax brackets, that move wouldn't be enough to offset the tax increase of reducing the mortgage-interest deductions, Ellis said. 

Berman also expressed concern about proposals to tax dividends and capital gains at ordinary tax rates, which would "seriously impact investment in commercial real estate."

The panel would need 14 of 18 members to agree on a plan for it to receive an automatic vote from Congress, which looked doubtful on Wednesday.